Twitter earnings: It's user base that matters

The Twitter logo is displayed on the facade of the company's headquarters in San Francisco.

Twitter earnings coming after market close; the conference call to happen at 5 p.m. ET. The normal metrics (roughly $241 million in revenues, loss of $0.03 in earnings expected) don't apply to the micro-blogging site. Even the valuation (about 70 times forward EBIDTA) doesn't matter much.

It's Monthly Active Users that matter, and that's the problem. Last quarter, it added only 1.3 million new users in the U.S., which is a mere three percent growth quarter-over-quarter, according to Stifel. International growth was better at 8.0 million users, but even there it was only a five percent improvement.

Twitter also has to find some way to keep its users more engaged on the site. A second, closely-watched metric, Time Line Views per Monthly Active Users, which measures how much engagement users have with the site, fell in the last quarter, both domestically and internationally.

It's going to have to do better than that to keep the share price up. The company went public in November 2013 at $26, and rocketed to almost $75 by the end of the year. But Twitter was a classic momentum stock...trading on expectations of massive growth in the user base and when that started to flutter in January the stock began to crack. Then when all the momentum stocks started coming under pressure in March, the stock took another dive down; now at $43 and change.

Twitteris growing faster in emerging markets like Indonesia, but whether that will be enough for investors--and advertisers---is not clear. Why advertisers? Because they are the key. They want growth in digital markets that are more mature to justify switching ad dollars to Twitter from traditional ad markets, or even other digital markets.

If Twitter cannot grow users, it had better figure out a way to convince advertisers that it has a sufficiently unique platform so that its advertising offerings does not just turn into a commodity product.